8 Hidden Costs of a Startup

Regardless of what anyone else tells you, running a business isn’t cheap or easy. In addition to the expenses you probably know about, there are a number of hidden costs of starting and running a business. I personally find that easily sneak up on you. It can even erode your bottom line if you aren’t careful.

Understanding Startup Costs

According to a well-cited study from the Kauffmann Foundation, a small business startup takes an average of $30,000 to get off the ground and running. There are businesses that take $300 and $3 million, but this average figure gives you a good ballpark estimate of what many entrepreneurs are forking over.

Startup costs can pile up, but at least you know what to expect (for the most part). It’s pretty easy to price out things like real estate, website development, initial inventory, opening promotions, fees for licenses, and all of the things that go into opening the business up. 

The problem is that this is only the beginning. Getting the business off the ground and successfully maneuvering a grand opening is one thing. Turning your new startup into an established business that’s poised for long-term growth is something else entirely. If you aren’t prepared for hidden costs, you’ll find yourself in a compromising situation much sooner than you ever thought possible.

8 Hidden Costs of Starting and Running a Business

Perhaps you’ve taken a look at the research study that says 9 out of 10 startups fail. It’s a sobering, yet realistic look at the challenges that exist in starting, building, and sustaining a business over the long haul. And while businesses fail for dozens of reasons, some of the most common factors have to do with money.

Based on an analysis of 101 startup post-mortems, the study determined that 29 percent of startups fail because of a lack of capital. Roughly 1 in 5 startups – 18 percent to be exact – have pricing and cost issues.

While a lack of capital and pricing/cost issues can refer to any number of issues, it’s clear the properly managing finances is a major challenge. If you, as a business owner and entrepreneur, are able to master this aspect of running a company, you stand a much greater chance of being successful.

As mentioned, the trickiest part of this equation is the hidden costs. You need to understand what you’re going to face before you actually deal with it – or at least quickly enough that you’re able to respond in an efficient manner.

The exact expenses your business deals with will vary based on any number of factors, but you should be aware of the following hidden costs that almost always emerge from the shadows at the most inopportune of times. 

1. Expensive Loans 

Most entrepreneurs need some sort of loan to finance a startup. This often comes in the form of a small business loan from a bank or other traditional lender. And if you don’t have any business experience or an established company with the right tax and revenue documents, that loan is most likely going to be based on your own personal situation. Thus, if you have a bad credit score, you’re going to get some pretty bad terms on the loan (if you get approved at all).

Unfortunately, this often starts a cycle. You get bad terms because of your bad credit. Which in turn means you spend thousands more in interest payments over the course of the loan. And because you’re spending more in interest, you’re less likely to be able to make payments on time. This drags your credit score down further, which costs you even more in the future.

You need to be aware of the hidden cost that is loan interest. Fixing credit on the front end will save you a lot of money in the years to come.

2. Employee Benefits and Perks

It’s not enough to calculate what you’ll pay an employee in terms of salary. If you don’t account for taxes, benefits, and perks, you’ll quickly find yourself in a hole.

According to research from Joseph G. Hadzima Jr. of the MIT Sloan School of Management, the overall cost can run from 1.25 to 1.4 times the basic pay. The increase is due to things like employment taxes, workers’ compensation, and fringe benefits (healthcare, retirement, vacation, etc.).

Using Hadzima’s multiplier factor, a $50,000 salary could cost as much as $70,000. And when you account for multiple employees, the disparity in what you actually pay versus what you expected to pay could be enough to run your business into the ground.

3. Shrinkage

For companies that sell physical products, there’s always the risk of shrinkage. Whether purposeful or unintentional, shrinkage actually costs retailers an estimated $45 billion per year in the U.S. alone.

Shrinkage can result from any number of causes and isn’t just reserved for retailers. Examples include shoplifting, employee theft, paperwork errors, and vendor fraud. Then, there are the roughly 6 percent of losses that can’t be accounted for under any of these categories. They’re simply mysteries!

If you’re aware that shrinkage is an issue, you can be proactive and prevent many of the factors that cause it. It’s nearly impossible to avoid shrinkage altogether, but you should be able to mitigate it enough that it doesn’t negatively impact your company’s bottom line.

4. Insurance

When you first start out, you might not need a lot of insurance. However, as time goes on, the need for various insurance policies increases. These include things like general small business insurance, liability insurance, errors and omissions insurance, workers’ compensation insurance, property insurance, and cyber insurance.

How much you spend on a given policy is based on numerous factors, including the type of business, size of the business, industry, location, revenue, previous issues, present risk factors, and number of employees. You can easily spend $1,000 or more per policy per year. For a business that’s already operating on a tight budget, these hidden costs can make it difficult to stay on track. 

5. Legal Fees

You probably don’t go into business thinking you’re going to generate a bunch of legal fees. That doesn’t mean they don’t exist. In some cases, legal fees might be the number one hidden cost.

“Small businesses are the target of many frivolous lawsuits because trial lawyers understand that a small business owner is more likely than a large corporation to settle a case rather than litigate,” NFIB explains. “Often small business settlements are less than $5,000, but even $1,000 settlements are significant for businesses.”

And even if you settle a suit, you can expect to see insurance premiums rise as a result. This drives up costs even further.

6. Taxes 

Coming from a career where you were an employee, you probably didn’t think much about taxes. Sure, you paid your fair share of taxes, but it was largely automated by the payroll department. Your company probably covered part of your bill. Unfortunately, things are different as a self-employed business owner.

Even if you aren’t generating a ton of money for yourself, you’re still going to owe Uncle Sam something. And because you’re on your own, self-employment tax becomes a real thing. Be sure you take this into account. 

7. Fees and Permits

Depending on what industry you operate in and what products you sell, you might need various fees and permits to be considered legal. Many entrepreneurs don’t realize this and find themselves spending thousands on something they didn’t know about.

The classic example is the alcohol permit for businesses that sell and/or serve alcohol. When Mark Aselstine and Matt Krause started a wine club company in California, they found the process of getting permits to be very expensive. Between all of the permits, Aselstine estimates that he and his business partner spent close to $15,000 in their first year of business. 

8. Administrative Costs

Finally, administrative costs will sneak up on you if you aren’t prepared. This includes all of the things you previously took for granted when you worked for someone else

  • Utilities
  • Computers
  • Phones
  • Printers
  • Filing cabinets
  • Paper clips
  • Office cleaning supplies
  • Software

Individually, these items might not cost that much. They only add up to thousands of dollars over the course of a year. Do yourself a favor and account for them when you prepare your budget. 

Can You Handle the Cost of Business? 

There’s an old saying that says, It takes money to make money. In other words, you need money in order to make more of it. As motivating as it might be to claim that you only need a good idea and lots of ambition, the reality is that very few entrepreneurs make it anywhere without:

  1. Having money
  2. Using that money wisely

As with anything, there are exceptions, but this is the general rule of thumb.

Whether you’re planning on starting a business, recently launched a company, or are in the growth stage of building a brand, you have to be aware of just how important money is in the equation. Specifically, you must be aware of the hidden costs.

Image: Due.com

This article, "Hidden Startup Costs Revealed: Here are 8 to Consider" was first published on Small Business Trends

Questions Millennial Entrepreneurs Must Ask at the Start

So, you’re a millennial who fancies running your own business and being your own boss? That’s great news, you’re one of the 60 percent of millennials who consider themselves entrepreneurial!

While such a huge chunk of the millennial generation regard themselves as possessing an entrepreneurial spark, do they have the business knowledge and acumen to successfully run their own business?

Questions Millennial Entrepreneurs Must Ask at the Start

Fortunately, help is at hand, as Small Business Trends caught up with Tom Portesy, president of MFV Expositions, who has more than 20 years of franchise industry experience, to shed some light on five leading questions every millennial must ask themselves before starting a business.

Do You Have the Entrepreneurial Spirit Needed to Succeed?

You may think you have an entrepreneurial spirit, but do you really have what it takes to succeed?

According to Tom Portesy, owning their own business is a popular goal for many people and can be the answer to enjoying life from both a financial and quality of life standpoint.

Though Tom warns that true entrepreneurship is a full-time, 24-7 job. You should therefore ask yourself whether you ready for time away from friends and family? Also ask yourself whether you are you ready for rejection, disappointment and failure?

Whilst the rewards can be immense, every millennial entrepreneur should prepare themselves for sleepless nights and risking everything they’ve got.

What Are Your Leading Passions?

Before embarking on a business venture, millennials should look to their most inward passions. As Tom Portesy notes, there are thousands of business opportunities to pursue and before starting a business, entrepreneurs should narrow their search by looking at their passions.

Skill sets should ideally be aligned with your business of choice, advises Portesy.

Do You Have Adequate Funds to Start the Business?

It is vital that anyone wanting to start their own business venture has an understanding the total costs involved.

Tom Portesy advises millennials to map out the total investment, including purchase costs, opening inventory, and how much working capital you will need before you break even, prior to pursuing any business opportunity.

Millennials should also be aware of the different financing options available to them. The franchising business expert notes how in the case of franchising, lenders are more likely to lend, given the fact that there are support systems for the owner in place.

Can You Learn from Other Small Business Owners?

The president of MFV Expositions says millennials looking to be their own boss and start a business should do their due diligence and connect with other small business owners who have succeeded and struggled.

One of the best sources to learn about the challenges to overcome are other small business owners who successfully run their own business.

Will You Receive Any Support?

Tom Portesy rightly notes that entrepreneurship isn’t a one-man show. Millennials embarking on any kind of start-up should look to receiving support, whether it’s from friends and family, business partners, or franchisors, get as much support and help you can to help eliminate the risks involved with starting your own business.

They may have bags of enthusiasm but every millennial entrepreneur should be aware of the somewhat startling statistic that more than 50 percent of small businesses fail within the first four years.

By asking yourself the questions Tom Portesy has mapped out prior to embarking on your own business venture, could help put you on the road to entrepreneurial freedom and small business success.

Start Up Owners Photo via Shutterstock

This article, "5 Questions Every Millennial Must Ask Before Starting a Business" was first published on Small Business Trends

5 Small Business Benefits of Volunteering

Customers are the backbone of your business. Customers are more important than consultants, trainers, senior managers, and executives. Without paying customers, a business goes bankrupt.

Therefore, reaching as many people in your market as possible is paramount. However, building goodwill in people extends beyond the “here we are now — buy our stuff.” Nobody buys from businesses just because they exist.

People in this age — more than ever before  — want to do business with real people with integrity and purpose. Therefore, a low-cost way to ensure your small business reaches as many people as possible is by volunteering.

Small Business Benefits of Volunteering

This post will discuss several ways that will show you how your small business will benefit from volunteering.

1. Encourage Healthier Employees

From a scientific standpoint, when you’re happy and doing work you feel good about, the neurotransmitter dopamine is released in the brain. Dopamine improves your overall sense of well-being and increases your capacity to learn, be creative, and experience increased levels of vibrancy.

In order to feel good about yourselves, dopamine (a neurotransmitter) needs to be released into the brain. When this happens, you feel happier, are more willing to learn, and reduce stress more effectively. It has been scientifically proven that helping people makes you feel good.

And when you feel good about yourself, by association you’re more likely to take care of yourself by eating healthier and exercising more. (Or at least making the decision to track the results of your diets and workouts.)

Therefore, volunteering helps you feel good about making a difference in the world. Happy employees are a lot more pleasant to deal with and more productive .

2. Create Community Goodwill

How much money have you invested in advertising (online and offline)? Did you see the ROIs you were expecting? Have you beefed up on the myriad of marketing campaigns (such as direct mail, PPC, joint ventures, sales letters, radio spots, billboards, signposts, etc.)? Gets to be pretty expensive, doesn’t it?

Volunteering your business to organizations (or simply helping out around your hometown) is free advertising. Additionally, most people are bludgeoned to death by ads on a daily basis. So much so that they virtually ignore all of them. Giving back to your community gives you more exposure to those who may not be susceptible to traditional advertising.

3. Network With Other Volunteers

When you volunteer, you give yourself opportunities to meet business leaders, politicians and other entrepreneurs who can help you take your small business to the next level. How? Because volunteering is all about adopting a “give back” attitude — and you’re almost certain to meet someone who can benefit you — or someone who you can benefit. Either way, you’ve just made a new contact and potential friend!

Perhaps this contact can help your business in an area where you don’t have the resources, time (or will). There really is no disadvantage to networking — regardless of which sector you’re in. Volunteering is a great way to jumpstart your networking skills.

As a volunteer, you are entering the service industry. Giving your time, effort and energy to organizations with the goal of recruiting people for your business is shady and unethical. However, if you come across someone whose talents are a match for your company, there is no harm in engaging with them.

The main reason volunteering helps your business is this: it reinforces solidarity and camaraderie amongst your employees who choose to volunteer their time. Let’s say your business is sponsoring a charitable cause over the weekend, and workers are encouraged (but not required) to donate their time. The workers who choose to go and help out will feel a bond as strong as sharing a drink together at the pub.

4. Generate More Publicity

Chances are, your local media outlets are going to catch wind of local events happening throughout the community. Those media outlets will give you great coverage — and give you exposure to an audience who may have never heard of your small business.

For example, if you’re a dentist and — once a month — you hold a “free check-up” day for everyone in town, regardless of the state of their dental health, your practice could get some attention from the media. This is great for your business!

Volunteering automatically puts you in new positions and opens you up for new opportunities as a result. And that’s a perfect segue into the final benefit for volunteering. This can be even better than word-of-mouth advertising.

5. Develop New Skills

Volunteering can give you a chance to focus on personal growth for you and your team. For example, if you or members of your staff are introverted, or not accustomed to dealing with people, that fear can be confronted head-on. By meeting so many people in a short amount of time, you will become more comfortable in public settings.

You will also learn how to be more creative and mentally flexible. Organizations with limited funds often require creative “out of the box” thinking that allows them to innovate more effectively. Volunteering automatically puts you on the frontlines of coming up with creative solutions for financial problems that will pop up.

Conclusion

If you want to start volunteering, take to social media! Talk about your goals on Facebook, Twitter, or LinkedIn and “tag” a bunch of local businesses and people you know. Look online for opportunities in your community that will allow you to get involved. Once you get started, you will reap tremendous benefits for your company.

Volunteers Photo via Shutterstock

This article, "5 Ways Volunteering Can Help Your Small Business Grow" was first published on Small Business Trends

The 5 Best Small Startup Resources

It’s a common question — “What should I do to successfully launch my startup?”

Best Small Startup Resources

There are a lot of things you can do to get your small business going, and turning to the best resources to help you is one of them. Check out this list of the 5 best small startup resources you should utilize to get your business up and running.

Read the Right Books

Take a couple days to read “Delivering Happiness” by Tony Hsieh. Whether you have business ideas for fashionistas or foodies, you know your idea is one people will love. However it’s not that simple. Read this book and use what you learn to help you run your business. Tony shares the roller coaster he rode on his journey to success – a cautionary tale that is great for any individual venturing into building a business from the ground up. This book can help you prepare mentally for the hardships and victories that you’ll experience as an entrepreneur.

Talk About Your Business

Think you have an innovative idea like Uber or AirBnB? If so, the next thing you need to do is head to LegalZoom.com. It will cost $99 and state filing feels, but will allow you to share your business, not just your idea, and protect it too. The company has helped close to 2 million people start or run their business. It’s a big step to move from the inspiration stage to actually sharing your business and turning it into reality. This is one of the most meaningful steps in setting up a business.

Build a Solid Business Plan

If you need a business plan — and all businesses do — the Small Business Administration is a great resource for businesses of any size. Turn your business idea into a reality with a high-quality industry-targeted business plan. A business plan is an important tool that can help you be a better entrepreneur. There are endless benefits of a business; they help you stay on strategy, ensure your objectives are clear, utilize milestones to keep you on track, and empower you to be better at delegating.  Your business plan doesn’t have to be elaborate, but it should be a collection of lists and bullet points that set expectations to help you effectively manage the future.

Buy a Domain

You need to find a domain — and buy it. GoDaddy makes registering Domain Names as simple and affordable as possible. As of May of 2017, GoDaddy had 17 million customers across the world. Turn to this web hosting company to help you create a website for your new small business. Websites build credibility, act as the anchor for your marketing, and house important information. Every business needs to think of a website as a fundamental and affordable tool that leads to success.

Utilize Social Media

It’s great you don’t have to rely solely on mailers to market your business today. Your startup needs to harness the power of social media to advertise products and services and interact with customers. Social media increases brand awareness, forges connections with customers, and allows you to reach a wider audience. Focus on a platform or two. If you’re a wiz at snapping captivating photos, make sure you’re present on Instagram. If you write concise and compelling marketing spiels in less than 140 characters, Twitter should be your new best pal. It’s vital to take the steps to establish yourself as a leader in your field. Social media is the perfect place for you to showcase your abilities.

Starting a new business venture is intimidating, but entirely possible and exciting at the same time. Use these tips to help you launch your startup and your business will be off the ground in no time.

What other resources would you recommend for those trying to launch a startup?

Startup Partners Photo via Shutterstock

This article, "5 Steps to Follow During the Small Business Startup Process" was first published on Small Business Trends

So, you want to start a business. That’s great! Starting a business can be a great way to make extra money, achieve financial independence, and live your desired lifestyle.

However, before you start things off, it’s important to know a few things. Starting a business isn’t always the glamorous lifestyle you’ve heard of. Here are five things to keep in mind as you move forward:

1. You Have to Know the Right Business for You

Before starting a business, you should know what is likely to be right for you. Not everyone does well in a brick and mortar location. Some people aren’t cut out for business models that involve freelancing.

There are a lot of potential business models and plenty of ideas for budding entrepreneurs. Do the research. Know what’s right for you. Pursue a business idea that offers you a better chance of success.

2. You Need to Know the Purpose of Your Business

Does your business have a purpose? Are you solving a problem? Are you making people’s lives better?

Understanding your purpose is vital when starting a business. You should know the “why” behind what you do. It’s not enough to just want to make money. You should have a clear idea of why you are going into business — and why the model you choose is the right one.

When you understand your purpose as a business owner, you are more likely to stick with it and succeed.

3. You Need to Know the Basics of Accounting and Finance

A basic knowledge of finance and accounting can be a big help when starting a business. This includes understanding how to limit your debt, manage cash flow, and other concepts.

Before starting a business, brush up basic money management concepts, as well as business basics. When you start on a solid foundation, you are less likely to have serious problems later.

Plus, it can help you get your own personal finances in order before you take the plunge. Having your own financial house in order is vital, and you also need to make sure you keep your personal and business finances separate.

4. You Should Know How Your Family Will Operate as You’re Starting a Business

Too often, entrepreneurs jump in without thinking about the impacts on their families. However, before you start a business, you should sit down with your life partner. Talk about the realities and the sacrifices.

You also need to set boundaries for your work. It’s easy to get caught up in entrepreneurship, but you also need to maintain a work-life balance. You don’t want your personal relationships to fall apart — especially those important family relationships. Know how to handle this ahead of time.

5. You Need to Know the End Game

Finally, make sure you understand the end game. Do you plan to build a business you can sell to someone else? Do you hope to start a small solopreneur or lifestyle business that you can run yourself, with no plans to scale up? Are you planning to pass the business on to your kids?

Understanding the end game now can help you build the right kind of business structure and plan for succession if necessary. Pay attention at the start of your business journey, and you will be better positioned for success later.

 

5 Things You Must Know Before Starting a Business was originally published on Due by Miranda Marquit.

The post 5 Things You Must Know Before Starting a Business appeared first on KillerStartups.